1953 (5) TMI 8 - SC - VAT and Sales Tax

Whether in addition to the export-sale and import-purchase, which were held in the previous decision to be covered by the exemption under clause (1)(b), the following two categories of sale or purchase would also fall within the scope of that exemption. Held that - Appeal dismissed. The last type of transaction in African raw cashew-nuts is where the purchase takes place after the cashew-nuts arrive in Travancore port and are thereafter sold and delivered ex-godown to the respondents. This is clearly a case of intra-State sale and clauses (1)(a) and (2) of the Article can have no application to it. The respondents cannot claim exemption under clause (1)(b) for reasons stated above. As the respondents do not claim any exemption from taxation with res- pect to pre-Constitution purchases, the same need not be discussed separately. For reasons stated above, the decision of the High Court must be upheld only to the extent that the assessments should be quashed. The matter must, however, go back to the Sales Tax Officer who must make a reassessment in the light of the principles laid down in the two previous cases referred to regarding clause (1)(a), the Explanation and clause (2) and in the light of the principles discussed above regarding clause (1)(b).

Issues Involved:

1. Sales by export and purchases by import exemption under Article 286(1)(b).
2. Purchases by the exporter for export and sales by the importer after customs frontiers.
3. Sales by transfer of shipping documents while goods are beyond customs frontiers.
4. Interpretation of Article 286(1)(a) and its Explanation.
5. Taxability of purchases from neighboring states.
6. Taxability of imported goods and transactions involving intermediaries.
7. Inclusion of packing materials in turnover for assessment.

Detailed Analysis:

1. Sales by Export and Purchases by Import Exemption under Article 286(1)(b):

The judgment clarified that sales by export and purchases by import fall within the exemption under Article 286(1)(b) of the Constitution of India. This was upheld from a previous decision by the Court. The Court emphasized that the exemption is limited to transactions that occasion the export or import of goods.

2. Purchases by the Exporter for Export and Sales by the Importer after Customs Frontiers:

The judgment determined that purchases in the State by the exporter for the purpose of export and sales in the State by the importer after the goods have crossed the customs frontiers do not fall within the exemption of Article 286(1)(b). The Court reasoned that such transactions are preparatory acts and not part of the export or import process.

3. Sales by Transfer of Shipping Documents While Goods are Beyond Customs Frontiers:

Sales in the State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs frontier are within the exemption of Article 286(1)(b), assuming that the State-power of taxation extends to such transactions. The Court highlighted the commercial practice of transferring shipping documents while goods are in transit as integral to foreign trade.

4. Interpretation of Article 286(1)(a) and its Explanation:

The Explanation to clause (1)(a) of Article 286 only explains what constitutes an outside sale or purchase. It indicates that a sale or purchase is deemed to take place in a particular State for the purpose of consumption, thereby attracting the ban of clause (1)(a) and taking away the taxing power of other States. The Court clarified that this Explanation does not convert an inter-State sale into an intra-State sale for any purpose other than the limited purpose of sub-clause (a).

5. Taxability of Purchases from Neighboring States:

The judgment addressed purchases made from neighboring districts of the State of Madras. If the purchases were made outside the State and deliveries were taken by the respondents' own servants, the transactions would be exempt under Article 286(1)(a). However, if the purchases were made through commission agents and delivered within the State, they would partake of an inter-State character and fall under Article 286(2), making them taxable under the President's Order.

6. Taxability of Imported Goods and Transactions Involving Intermediaries:

The Court examined transactions involving the import of goods from Africa through intermediaries in Bombay. It held that purchases made through intermediaries acting as agents for the respondents, where the goods were purchased on the high seas, fall within the exemption of Article 286(1)(b). However, when the intermediaries acted as principals and sold the goods to the respondents within the State, such transactions were local purchases and taxable.

7. Inclusion of Packing Materials in Turnover for Assessment:

The judgment addressed the inclusion of the value of packing materials in the turnover for assessment. It was held that the sale of packing materials to foreign buyers, being part of the export transaction, should not be subject to sales tax.

Conclusion:

The decision of the High Court quashing the assessments was affirmed, with the cases remanded to the Sales Tax Officer for fresh assessments in light of the judgment. Each party was ordered to bear its own costs. The judgment provided a detailed interpretation of Article 286, emphasizing the importance of distinguishing between transactions directly related to export/import and those that are preparatory or subsequent local transactions.

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